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Liberty takes control of o’seas cabler

Co. will acquire all outstanding class B shares of UGC

In keeping with its vow to become more operating company and less media hedge fund, John Malone’s Liberty Media on Tuesday agreed to acquire full operating and equity control of its debt-ridden overseas cable subsid, UnitedGlobalCom.

Deal, which is part of an ongoing restructuring of its loss-making international cable/telecom investments, could be a first step toward a contemplated spin-off of all Liberty’s international programming and distribution assets.

Under the deal, Liberty will acquire all outstanding class B shares of the company from the founding shareholders (including UGC chairman and CEO Gene Schneider) by issuing $140 million worth of Liberty class A shares. Liberty also has agreed to pay an estimated $25-$30 million in cash to cover 50% of the founder’s tax liability arising from the deal. Transaction will give Liberty 96% voting control (and 75% of the equity) of UnitedGlobal along with its debt.

Europe’s largest cabler

UPC, UGC’s primary operating unit, is Europe’s largest cable operator and is tip-toeing its way out of bankruptcy after amassing some E10.7 billion ($11.92 billion) in debt. Amsterdam-based company intends to change its name to UGC Europe this fall.

UPC has been a headache since its shares collapsed after the tech bubble burst in 2000, leaving the Liberty-backed unit responsible for an expensive cable-acquisitions spree across Europe.

And while the total outlay is relatively small for cash-rich Liberty, assuming some $4 billion of UnitedGlobal debt onto its balance sheet could limit Malone’s financial flexibility for future deals, especially when combined with its recent $7.9 billion stock and debt purchase of home shopping net QVC. The extra debt load (which excludes some $3.3 billion in UPC obligations that are subject to pending bankruptcy proceedings in the Netherlands) could limit its ability to raise additional well-priced debt for purchases such as Vivendi Universal Entertainment, said analysts and ratings agency Standard & Poor’s.

Liberty has roughly $4.75 billion in cash and short-term securities and roughly $14 billion in debt (including the QVC purchase).

‘Good prospects’

To date, Liberty has invested some $2 billion in capital in UnitedGlobal and S&P noted that the group “still faces financial and operating challenges, but has good prospects to gradually recover its financial health once UPC’s bankruptcy is complete.”

Transaction is expected to close by end-2003, around the same time its QVC purchase is due to be completed.